Difference Between Private Equity and Debt Capital

Private equity is an equity instrument usually in the form of preferred stock. Debt capital is a generic term use to describe both bank loans and non bank loans such as unitranche or mezzanine loans. Both private equity and debt capital can be used for the same purposes. Acquisitions, growth, working capital, growth expenses are some of the capital uses. Yet, the real difference between these two is in their pricing and their contractual relationship with their target company. Both forms of capital can work harmoniously in a synergistic way. Additionally, both are used in different ways in different types of scenarios. Private equity is a form of capital that makes majority control investment and minority investments in companies. It's used mostly for buy-outs wherein a private equity fund is purchasing 100% of the shares for the owner of the business. Its returns are created through increasing the valuation of the company over a 3 to 5 year time frame. Private equity investors like to own companies and call the shots. ..»